Business law intro1

UNIT-1
1DR. INDU SANTOSH @2015

INTRODUCTION TO LAW
What is law ?
 A citizen may think of ‘law’
as a set of rules which he must obey.
 A lawyer who practices ‘ law’ may think of law as a
vocation.
 A legislator may look at ‘law’
as a something created by him.
 A judge may think of ‘law’
as a guiding principles to be applied in making decisions.
DR. INDU SANTOSH @2015 2

INTRODUCTION TO LAW
• Law includes all those rules and regulations
which
• regulate our relations with other individuals
and with the state

Meaning of Law
• Law means a set of rules.
• It may be defined as the rules of conduct
recognized and enforced by the state to control
and regulate
 the conduct of people,
 to protect their property and contractual
rights with a view to securing justice,
peaceful living and social security.

Meaning of Law
The law is not rigid, it is flexible.
Since the value system of society keeps on
changing , the law also keeps changing according
to the changing requirements of the society.
There are several branches of law such as
International law, constitutional law, criminal law,
civil law etc..
Every branch of law regulates and controls a
particular field of activity

Source of Law
• English Mercantile Law: English laws are the
primary sources of Indian Mercantile Law.
English laws are based on customs and usages of
merchants in England.
• The Statute Law: The various Acts passed by the
Indian Legislature are the main sources of
mercantile law in India, e.g. Indian Contract Act,
1872, The Sale of Goods Acts,1930, The
Partnership Act, 1932, The Negotiable
Instruments Act 1881, The Companies Act, 1956.

INDIAN CONTRACT ACT
The law of contract is regulated by Indian Contract Act,
1872
OBJECT OF THE LAW OF CONTRACT
 The law of contract is that branch of law which
determines the circumstances in which promises
made by the parties to a contract shall be
legally binding on them.
 In simple words, the purpose of law of contract
is to ensure the realization of reasonable
expectation of the parties who enter in to contract.

INDIAN CONTRACT ACT
• Section 2(h) of Indian Contract Act, 1872
defines a contract as ……..
“An agreement enforceable by law”.
So, a contract is an agreement made between two
or more parties which the law will enforce.

CONTRACT
• An agreement enforceable by law is a
contract.
Contract = Agreement + Enforceability
Agreement = Offer + Acceptance
An agreement is defined as,
“every promise and set of promises, forming
consideration for each other” [Sec2(e)].

PROMISE
• A promise is defined thus:
“When the person to whom the proposal is made
signifies his assent there to, the proposal is
said to be accepted.
A proposal, when accepted, becomes a promise.”
[Section 2(b)].
An agreement is an accepted proposal.

consensus ad idem
The essence of an agreement is meeting of the
minds of the parties. There must in fact, be
consensus ad idem.
• Eg., A, (owns two horses named Rajhans &
Hansraj), is selling horse Rajhans to B.
B thinks he is purchasing Hansraj.
There is no consensus ad idem consequently no
contract.

TYPES OF AGREEMENT
Legal Agreement
Social Agreement
Domestic Agreement

OBLIGATION
 An agreement, to become a contract, must give rise to
a legal obligation or duty.
 An obligation is a legal tie which imposes upon a
definite person or persons the necessity of doing or
abstaining from doing a definite act or acts.
Ex. A agrees to sell his car to B for Rs.1,00,000/-.The
agreement gives rise to an obligation on the part of A
to deliver the car to B on the part of B to pay
Rs.1,00,000/- to A. This is a legal agreement. This
agreement is a contract.

OBLIGATION
An agreement which gives rise to social
obligation is not a contract .
An agreement is a wider term.
An agreement may be a social agreement or a
legal agreement.
If A invites B to a dinner and B accepts the
invitation, it is a social agreement.

OBLIGATION
• A social agreement does not give rise to
contractual obligations and is not enforceable in a
Court of law.
• It is only those agreements which are enforceable
in a court of law which are contracts.
• A father promises to pay his son Rs.100/- every
month as pocket allowance. Later he refuses to
pay.
The son cannot recover as it is a domestic
agreement and there is no intention on the part of
the parties to create legal relations.

“All Contracts are Agreements, but all Agreements are not necessarily Contracts”
• ESSENTIALS OF A VALID CONTRACT: Sec
2(h) & sec(10)
1. Offer and Acceptance
2. Intention to create legal relationship
3. Lawful consideration
4. Capacity of parties-Competency
5. Free and genuine consent
6. Lawful object
7. Agreement not declared void
8. Certainty and possibility of performance
9. Legal formalities

ESSENTIALS OF A VALID CONTRACT
1.Offer and Acceptance:
There must be two parties to an
agreement, i.e., one party making the offer and
the other accepting it
The terms of the offer must be definite and the
acceptance of the offer must be absolute and
unconditional.
The acceptance must also be according to the
mode prescribed.

2.Intention to create legal relationship:
When two parties enter into an agreement, their intention
must be to create legal relationship between them .If there
is no intention on the part of the parties, there is no
contract between them.
E g., A husband promised to pay his wife a house hold allowance
of 30 pounds every month .Later the parties separated and the
husband failed to pay the amount. The wife sued for the
allowance .
Held, the agreement such as these were outside the realm of
contract altogether (Balfour vs.Balfour,1919 & s Carbolic
smoke ball Co.v
s Carlill)

Lawful consideration :
An agreement to be enforceable by law must be
supported by consideration.
‘Consideration’ means advantage or benefit moving
from one party to the other. It is the essence of a
bargain.
In simple words, it means ‘something in return’.
A promise to do something and, getting nothing in
return is usually not enforceable by law.
 Consideration need not be in cash or kind.
 It may be an act or abstinence.
 It may be past, present or future. But it must be
real and lawful 19DR. INDU SANTOSH @2015

• 4.Capacity of parties-Competency:
The parties to the agreement must be capable of entering in
to a valid contract.
Every person is competent to contract if he,
(a) is of the age of majority,
(b) is of sound mind, and
(c) is not disqualified from contracting by any law to which
he is subject.
The flaw in capacity to contract may arise from minority,
lunacy, idiocy, drunkenness, etc

• 5.Free and genuine consent:
It is essential to the creation of every contract that there must
be free and genuine consent of the parties to the
agreement.
The parties are said to be of the same mind when they agree
about the subject matter of the contract in the same sense
and at the same time(Sec.13).
There is absence of free consent if the agreement is induced
by coercion, undue influence, fraud, misrepresentation and
mistake(Sec.14).

• 6.Lawful object:
The object of the agreement must be lawful. In other words, it
means that the object must not be (a) illegal, (b) immoral,
or (c) opposed to public policy(Sec.23)
If an agreement suffers from any legal flaw, it would not be
enforceable by law.

. Agreement not declared void:
The agreement must not have been expressly declared void by
law in force in the country under the provisions of sections
24 to 30 of the Indian Contract Act,1872
Under these provisions, agreement in restraint of marriage,
agreement in restraint of legal proceedings, agreement by
way of wager have been expressly declared as void
A void agreement is one which is not enforceable by law.

. Certainty and possibility of performance:
The agreement must be certain and not vague or indefinite
(Sec.29).
If it is vague and if it is not possible to ascertain it’s meaning,
it cannot be enforced.
Ex. ‘A’ agrees to sell to ‘B’ “a hundred tons of oil”.
There is nothing whatever to show what kind of oil was
intended. The agreement is void.

• 9.Legal formalities:
A contract may be made by words spoken or written.
As regards the legal effects, there is no difference between a
contract in writing and a contract made by word of mouth.
It is however in the interest of the parties that the contract
should be in writing.
In some other cases, a contract, besides being a written one,
has to be registered

@2015 26DR. INDU SANTOSH @2015

Business law intro1

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